Hundreds of Fraudulent Mortgage Lenders Indicted

Since the housing crisis began to seriously affect the U.S. economy, mortgage lenders have come under increased scrutiny for fraud, which has cost American homeowners an estimated total of $1 billion.

In March, U.S. Secretary of Treasury Henry Paulson announced that stronger regulation was necessary to control mortgage lenders. He suggested that financial institutions at large continue lending to facilitate economic growth, but that strong nationwide licensing standards for mortgage brokers be issued to curb corruption.

In April, the Federal Reserve announced that standards for mortgage lenders needed to change, requiring lenders “to show that potential borrowers can comfortably afford their mortgages, refrain from some types of deceptive advertising and point out the hidden fees in interest payments.”

More recently, arrests across the country have illustrated the increased malfeasance of some lenders. In Chicago, police reported that some were allied with street gangs.

More than 400 real estate businessmen have been indicted since March as a crackdown on mortgage fraud. According to the Associated Press, the sting known as “Operation Malicious Mortgage” has led to 1,406 arrests in 144 cases since March 1. The FBI estimates that more than $1 billion of homeowner money has been lost to fraudulent schemes.

As the city of Chicago braced for mortgage fraud crackdowns, the Chicago Tribune reported that increasingly sophisticated criminal activities, including drug-money laundering, have become associated with the housing market, and some of the brokers and appraisers arrested allegedly had ties to street gangs.”

In March, Secretary Paulson urged stronger oversight to regulate the mortgage industry. “Regulation needs to catch up with innovation and help restore investor confidence but not go so far as to create new problems, make our markets less efficient or cut off credit to those who need it," Paulson said.

Beware the online broker: fraudulent mortgage lenders are all over the virtual world. According to findingDulcinea’s investigation, “MortgageDeals.com exists solely to collect contact information from potential borrowers to sell to mortgage lenders on Etrafficers.com.”